You've put your blood, sweat and tears into building your business, and now it's time to sell a business. But potential buyers won't flock to your business if you simply put up a for sale sign, says Jim Chamberlain, a management counselor and financial expert with SCORE, a nonprofit organization that serves small businesses.
Selling a business requires a fair amount of legwork, including financial analysis, market research and sales savvy. The good news is that you probably have already developed these skills as a small-business owner.
Start Early
Selling a business takes at minimum several months – and that's if everything is already in order. Significant planning is involved: You will need to get your financials in order, figure out what your business is worth, evaluate the selling market, decide whether to use a broker, determine tax liabilities and work with potential buyers.
Have a Clear Reason to Sell A Business
If you've spent years building your business, made millions of dollars and want to enjoy retirement, you're probably in a good position to sell. However, if you're burned out, running low on cash or simply bored, keep in mind that selling is not your only option. The Small Business Administration encourages business owners who want out to also consider the following alternatives: franchising, developing a partnership, merging with a similar company, going public, and absentee ownership or partial retirement.
Get Your Financials in Order
“I tell the owners, ‘Clean it up’,” Chamberlain says. “Restructure your financial statements so they're easy to read.” You should have the past three years of financial statements and tax returns available for the buyer. Take care of any outstanding issues with the Internal Revenue Service or lenders, as these could diminish the trust of potential buyers. Make sure that your cash flow figures are clear and kept separate from the extras in your business, such as nonessential travel. Personal expenses, possibly your salary, should also be left out because your buyer will not inherit those costs. A cloudy financial picture of your business “ruins the deal,” Chamberlain warns.
Build a Mini-Business Plan
Selling a business requires sales skills. Chamberlain says owners of small businesses should develop a business plan to sell to potential buyers. He calls this “your story,” and it includes your business' financials, sales, the business plan, industry projections, recent improvements and other important aspects of your business. Have you had employees for 20 years? That's a great selling point. You may also need to explain why you want out if your business is a great investment. For example, Chamberlain says, you can tell a potential buyer that you think the business would thrive with a sales representative, but you couldn't afford one.Know Your Worth
Valuing your business is an arduous yet necessary task when you decide to sell. There isn't a single formula that can accurately determine the worth of your business. The best way to know your business valuation is to hire an appraiser, who can work through the technicalities of determining its value. But Chamberlain says this isn't necessary for many small businesses that have straightforward finances and business strategies.
